The SEC Is Coming (Again): 2017 Exam Priorities

by: John Lohr

Summary

The SEC, through its enforcement division, the Office of Compliance Inspections and Examinations, has announced its "Hit" list for 2017 examinations.

In addition to cybersecurity policies, the regulators are looking for abuses of senior investors and retirement assets.

Robo-advisors come under the microscope, and the word is "Watch out!"

Get ready! On January 12, 2017, the Securities and Exchange Commission released its Office of Compliance Inspections and Examinations' (OCIE) 2017 priorities, which include an increased focus on electronic investment advice, money market funds, financial exploitation of senior investors and protecting retail investors. As usual, the extensive details as to what advisors have to do are missing.

SEC Chair Mary Jo White said, "These priorities make clear we are continuing to focus on a wide range of issues impacting our markets, from traditional areas such as market-wide risks to new forms of technology including automated investment advice. Whether it is protecting our most vulnerable senior investors or those investing in the trillion dollar money market fund industry, OCIE continues its efficient and effective risk-based approach to ensure compliance with our nation's securities laws."

OCIE Director Mark Wyatt's said, "OCIE's priorities identify where we see risk to investors so that registrants can evaluate their own compliance programs in these important areas and make necessary changes and enhancements."

So, in the advisor world, there is little to no guidance as to HOW to comply... just a demand that, "You better figure out what to do to comply."

Retail Investors - Protecting retail investors remains a priority in 2017. As in 2016, OCIE will continue to attempt to assess risks to retail investors seeking information, advice, products, and services. It also will initiate examinations to review firms delivering investment advice through robo-advisors and wrap fee programs in which investors are charged a single bundled fee for advisory and brokerage services.

Senior Investors and Retirement Investments - OCIE will also keep a sharp eye on public pension advisors and the retirement market, especially senior investors and individuals with retirement accounts (should be everybody, but no word on those with IRAs, particularly). OCIE has a "ReTire" initiative, which includes reviews of investment advisors and broker-dealers that offer variable insurance products to investors with retirement accounts as well as those advisors that offer and manage target-date funds. There is no word as to whether Bridgestone is going to sponsor the ReTire program. OCIE also will look closely at advisor communication with senior investors as it examines the possibility of financial exploitation of seniors.

Market-Wide Risks - Systems, Compliance Integrity (SCI) and anti-money laundering, including compliance with the SEC's new money market funds rules.

FINRA - OCIE will continue conducting inspections of FINRA's operations and regulatory programs, evaluating the examinations of individual broker-dealers.

Cybersecurity - OCIE ramps up the examination of cybersecurity compliance procedures and controls, including testing the implementation of those procedures and controls at broker-dealers and investment advisors. This has significance because it is no longer enough to have policies. Advisors will have to have control operationally in place.

OCIE states that the published priorities for 2017 are not exhaustive and may be adjusted in light of market conditions, industry developments, and ongoing risk assessment activities.

Large firms such as the wirehouses have the resources and capital, including human capital, to have programs and procedures to be well prepared for an exam push. However, smaller firms, and especially those independents, are really going to have to look for help. You can find some guidance next month on somebodyelsesmoney.com

Regards,
John

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: We are in the business of providing guidance on regulatory, fiduciary and retirement matters at Somebody Else's Money (somebodyesesmoney.com

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